How to Reduce COVID-19’s Unequal Effects Across Workers

IMF Blog, June 1, 2021

Source details

Credit: Jorge Mondragon and Marina M. Tavares
Publication date: June 1, 2021
Context: Chart of the Week; COVID-19
Core finding: Research from the April 2021 World Economic Outlook shows that a well-sequenced policy package combining job retention support and worker reallocation support can more effectively dampen the increase in income inequality (as captured by the Gini index) over the medium term than either policy used alone.
Illustration detail: Job retention support is shown by the blue line; the combined, well-sequenced policy package is shown by the red line.

Lower-skilled and young workers suffered job losses in record numbers during the pandemic.
Some jobs may never reappear as economies readjust to a post-pandemic world.
Longer-term changes in the mix of jobs are likely: some sectors and occupations will permanently shrink, and others will expand.
With many unemployed workers still struggling to regain their pre-pandemic salaries and other fundamental shifts underway, incomes across workers are likely to diverge further.

Purpose: Keep vulnerable workers from falling into unemployment, maintain valuable job matches, and protect future income prospects for workers who can expect to eventually get their jobs back.
Typical instruments: Partial unemployment benefits and subsidies to maintain workers’ links to their employers.
Best timing: Deploy when the pandemic is acute and containment measures—like lockdowns—are in place.
Country examples:
- United Kingdom and Spain: used these policies to keep employment losses smaller.
- In emerging markets with large informal sectors, support policies may need adaptation to reach informal workers (examples: Brazil and Dominican Republic deployed cash-transfer programs targeted at informal workers).

Rationale: Not all jobs will return; as economies reopen, support to shift workers into new jobs reduces skill mismatches and encourages job creation.
Typical instruments: (Re)training programs, job search assistance, recruitment and start-up incentives.
Best timing: Ramp up as the pandemic subsides and economies reopen; the optimal pivot from retention to reallocation depends on each country’s circumstances, including the pandemic’s path and progress in vaccine rollout.
Country examples:
- Ireland and the Netherlands: invested in worker training programs and supported unemployed workers to find new jobs, boosting incomes and reducing inequality in the long run.

Deploy job retention support (e.g., partial unemployment benefits, employer subsidies) during acute pandemic phases to quickly reduce the rise in income inequality.
Transition to and scale up worker reallocation support ((re)training, job search assistance, recruitment/start-up incentives) as economies reopen to address permanent shifts in labor demand and reduce longer-term inequality.
Sequence matters: A combined, well-sequenced package (retention followed by reallocation) is more effective at lowering the Gini index over the medium term than either approach alone.
Tailor policies to country circumstances, including informal sector size and vaccine rollout progress; adapt delivery mechanisms (for example, cash-transfer programs) to reach informal workers where necessary.

Source: IMF Blog post by Jorge Mondragon and Marina M. Tavares, June 1, 2021.